Currency Exchange International Corp. (CURN) Q4 2022 Earnings Call Transcript

Currency Exchange International Corp. (OTCPK:CURN) Q4 2022 Earnings Conference Call January 24, 2023 8:30 AM ET

Company Participants

Bill Mitoulas – Investor Relations Manager

Randolph Pinna – President and Chief Executive Officer

Gerhard Barnard – Group Chief Financial Officer

Alan Stratton – Chief Financial Officer, Exchange Bank of Canada

Conference Call Participants

Robin Cornwell – Catalyst Research

Jim Byrne – Acumen Capital

Stephen Ranzini – University Bank

Operator

Good morning, ladies and gentlemen, and welcome to the Currency Exchange International 2022 Q4 and Year-End Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Tuesday, January 24, 2023.

I would now like to turn the conference over to Mr. Bill Mitoulas, Investor Relations Manager at CXI. Please go ahead, sir.

Bill Mitoulas

Thank you, Michelle. Good morning, everyone. Welcome to the Currency Exchange International conference call to discuss the financial results for the fourth quarter and full year of 2022. With us today are President and CEO, Randolph Pinna; Group Chief Financial Officer, Gerhard Barnard; and Chief Financial Officer of Exchange Bank of Canada, Alan Stratton. Alan will begin with his brief comments on EBC’s fourth quarter performance, followed by Gerhard, who will provide an overview of CXI’s overall financial results and his latest perspective on the company’s operations. Randolph will then provide his commentary on CXI’s strategic initiatives, sales efforts and business activities, after which we’ll open it up for your questions.

Today’s conference call is open to shareholders, prospective shareholders, members of the investment community, including the media. For those of you who may happen to leave the call before its conclusion, please be advised that this conference call will be recorded and then uploaded to CXI’s Investor Relations website page, along with the financial statements and MD&A.

Please note this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. Please refer to our financial statements and MD&A reports for more information about these factors that could cause these different results and the assumptions that we have made.

With that, I’ll turn the call over to Alan. Alan, please go ahead.

Alan Stratton

Thank you, Bill. Firstly, I’ll state that we are very pleased with the performance of the bank in Q4 as it continued to generate both growth in revenue and profitability. Q4 revenue of $5.6 million was $3.2 million or 137% higher than it was back in Q4 of 2021. This growth was driven both by the payment segment and the banknote segments.

Our payments revenue grew 72% on a functional currency basis from Q4 2021. And that growth has been driven primarily from the acquisition of approximately 300 new payments clients over the course of the fiscal year by our growing sales team.

We offer both spot and forward exchange contracts to companies across a broad range of industries. And as two thirds of Canada’s gross domestic product is derived from importing and exporting, there is a larger market for foreign exchange services in the country.

The banknote segment has continued to grow in step with the recovery in international travel and tourism. On October 1, the federal government removed the vaccination requirement for travelers entering Canada, eliminating the last travel restriction related to COVID-19 in the country. However, there do remain certain countries, including the United States that maintain a vaccination requirement for foreign nationals upon entering the country.

Despite that, the demand for U.S. dollars in Canada grew significantly in Q4 as travel to the U.S. increased. Statistics Canada reported that Canadian travelers increased their travel spending abroad by $2.2 billion in calendar Q3, most of which was in the United States.

A significant portion of the growth in banknotes is due to expansion of trade with foreign financial institutions, enabled by EBC’s participation in the Federal Reserve Bank of New York’s foreign bank international cash services program. September 2022 marked our first full year operating in that program, and we have seen successive quarterly growth in volumes.

It does take longer to onboard new foreign clients than a domestic one as we conduct due diligence around the risks associated with money laundering and tourist financing for both countries and institutions. However, once the client is onboarded, our experience has been that they increase their volumes over time as we build experience.

Our focus is on building long-term relationships with these institutions as we anticipate they will provide a predictable volume of trade over time. The focus is on clients with regular activity and large value trades as the cost for processing and shipping scale down as weight and value increases. As a result, the proportion of the variable costs relative to revenue is higher than our domestic business, which means that we need higher volumes to generate the economies of scale and operating leverage.

According to the Federal Reserve, there is approximately at the end of 2021, $2.1 trillion in U.S. currency in circulation doubled from what it was 10 years ago. This means that the addressable market for U.S. dollars continues to grow, which provides a significant opportunity for EBC in the years ahead.

For fiscal 2022, the bank generated $17.2 million in revenue, an increase of $9.8 million or 131% over the prior year. This revenue growth allowed the bank to generate its first full year of profitability. And as a result, we were also able to recognize $1.2 million in deferred tax assets that were related to losses the bank had generated in previous years.

In our view, 2022 marks the year that EBC has become financially sustainable, which should also make it easier to secure a line of credit with a major financial institution.

I’ll close by saying I am excited about the prospects for the bank and to being able to contribute to executing against its growth strategy in a prudential manner.

I would now like to turn it over to Gerhard Barnard to discuss the group’s performance.

Gerhard Barnard

Thank you, Alan, and thank you, everybody, for joining us on this call today. Firstly, I would like to personally start off and just congratulate Alan on his appointment as the CFO of Exchange Bank of Canada, and thank you for discussing Exchange Bank’s results.

I will now present an overview of the group’s results of the most recently completed fourth quarter as well as for the year ending the 31st of October 2022. For the consolidated CXI Group, these results are presented in U.S. dollars unless otherwise noted.

CXI had another very strong quarter and a record fiscal year with year-over-year growth in gross revenue of 117% or $66.3 million and net earnings before tax of nearly $14.2 million coming from a loss in the previous year.

Demand for foreign currencies increased significantly in the fourth quarter as international travel rebounded strongly on the pent-up demand and continued to strengthen into 2023. CXI effectively resolved the delays in processing shipments that experienced in the summer of 2022. The group is well positioned to execute its strategic plan and deliver another competitive year.

Now let’s look at the consolidated performance for the three months ended October 31, 2022, before I get back to the group’s stellar yearly results. CXI generated strong revenue for the three months ended 31st of October 2022 of $19.8 million, a 96% increase over the same period in the previous year. This increase reflects the acquisition of new customers in both the banknotes and payments product lines as well as a significant improvement in the demand of foreign currencies as governments in Canada and the United States, as Alan mentioned, and other nations relaxed or eliminated many policies that serve to prevent or discourage international mobility.

Payments revenue increased by 53% to nearly $3.4 million in the three months ended October 31, 2022, from $2.2 million in the same period of last year. This demonstrates CXI’s success in acquiring new client relationships in both the United States and Canada processing nearly 29,000 payment transactions, representing $3.2 billion in volume in the three month period ending 31st October 2022. This compares to roughly 21,200 transactions or $2 billion of volume in the previous year. Payments represented a 17% share of revenue, and this reflects the successful execution of the group’s strategic initiative to develop scale in international payments.

Now revenue in the other product line banknotes more than doubled, increasing by 108% to $7.9 million in the three month period ending to $16.4 million during the same period in 20220. The growth is attributable to three main drivers.

Firstly, consumer demand of foreign currencies have significantly improved as restrictions on international travel have eased over the past year between August and October of 2022, approximately 200 million travelers passed through the TSA checkpoints in the United States airports, approximately 94% of the pre-pandemic levels. This is an increase of 21% from the same year – same time last year.

Secondly, the group was successful at increasing its market share, as indicated by the increase in new wholesale clients and developing its direct-to-consumer footprint through new locations, including agents and its online FX platform.

And thirdly, the group has increased its penetration into the global banknote trade particularly driven, as Alan has mentioned, particularly driven by the Exchange Bank of Canada’s participation in the Foreign Bank International Cash Services or as we call it the FBICS program with the Federal Reserve of New York.

Now during the 3-year period ended 31st of October 2022, operating expenses increased by 54% to $14.4 million compared to $9.4 million for the three months period ending 2021. The variable costs included posting and shipping, sales commissions, incentive compensation, bank fees and third-party technology fees increased 84% to $5.1 million compared to $2.7 million. This is largely due to the increase in transaction volumes.

There has also been a significant rise in shipping fees due to a higher mix of international banknote trade, including fuel surcharges. The group recovers some of the shipping costs through fees that it charges to its clients. In some cases, it is built [ph] into the commission and the group has implemented some price increases to compensate for these higher shipping costs.

The ratio of total expenses to total operating or to total revenue for the three months period ended October 31, 2022, was 74% compared to 92% for the three months period in the prior period, reflecting the growth in revenue outpacing the growth in expenses.

The group recorded net operating income of $5.4 million for the three months ended October 2022, significantly higher than the net operating income generated in the same period of the prior year of less than $1 million. This reflects the group achieving economies of scale to a much greater extent when compared to the prior pandemic period.

The group generated $4.4 million in net income during the three months ended October 31, 2022, which included the recognition of $1.2 million in future tax benefits related to non-capital losses incurred in the previous year by EBC.

Now let’s take a look at the consolidated performance for the year ended 31st October 2022. The group generated record revenue of $66.3 million for the 3 years ended October 2022, a 117% increase over the same period last year and most importantly, 59% higher than the year ended 2020 – 31st of October 2019, the last fiscal year prior to the pandemic.

The increase from the prior year reflects not only an improvement in the demand of foreign currencies as international travel recovers, but also the acquisition of new clients in both banknotes and payment product lines.

The group achieved net operating income of $18.7 million for the year ended 31st October 2022 versus a net operating loss of $48,000 in the same period in the prior year. The group earned $11.8 million or $1.83 per share in the year ended 31st October 2022, a significant improvement from nearly $13 million or $2.01 per year.

Payments revenue increased by 61% to $12.4 million in the year ended October 1, 2022, from $7.7 million in the same period in 2021. This demonstrates the group’s success in focusing on the growth of payments through key client relationships in both the United States and Canada. The diversification strategy has been a significant factor in the group’s resilience in the face of the pandemic and its turn to profitability.

The group processed over 149,000 payment transactions, representing close to $5 billion in volume in the year ended 2022. That represents 36,000 or 38% more payment transactions and an increase of nearly $1.58 billion or 47% in volume compared to the previous year. The revenue from both banknotes grew 136% to $22.9 million in the year ended – in the year ended October 31, 2021, to $53.9 million during the current year. So that is that 136% increase.

The growth is attributable to three main drivers. Firstly, consumer demand for foreign currencies improved as restrictions on international travel have eased. Secondly, the group experienced success in increasing its market share, as indicated by the increase in new clients and the effective execution of its strategic plan. And thirdly, the group has increased its penetration in global banknote trade. The revenue growth has been consistent in both Canada and the United States and across all channels.

While the recovery in consumer demand for foreign banknotes is encouraging, the group expects future demand to fluctuate based on the risk often – of transmission from COVID-19 variants, inflationary impacts, as well as the risk of a recession.

By geography, the U.S. accounted for $49 million of the group’s revenue, an increase of 112% or $25.9 million compared to last year. At 73%, its share of revenue was fairly consistent with last year. That reflects the group’s ability to grow at the same rate in Canada, where Exchange Bank of Canada nearly grew its revenue – grew its yearly revenue to $17.2 million, as Alan has mentioned, an increase of 131%.

The group is very pleased with the growth in both Canada and United States, Exchange Bank of Canada began operating under its Federal Reserve Bank of New York’s, Foreign Bank International Cash Services or FBICS in short in the fourth quarter of last year, as Alan mentioned. And this program has helped the bank develop its international trade of U.S. dollar notes with foreign financial institutions.

Now during the year ended 31st of October 2022, operating expenses also increased by 55% to $47.6 million compared to $30.6 million for the previous year. Variable costs included posting and shipping, sales commissions, incentive compensation, bank fees and third-party technology fees, and those increased to 136% to $16.6 million compared to $7 million in the previous year. This is largely due to an increase in transaction volumes. There’s also been a significant increase in shipping fees due to a higher mix of international banknote trades and fuel surcharges.

Salaries and benefits increased 44% to $25.4 million from $17.7 million, a total of $3 million or 40% of the increase relates to an increase in variable compensation. Sales commission being the largest contributor to that variance of roughly $2.1 million, where the balance relates to other incentive compensation, driven primarily by the improved – improvement in the group’s performance.

The remaining 60% variance is partially related to incremental growth in headcount, which increased to 344 in the year ended 31st of October 2022 compared to 272 in the comparative year. It is also driven by inflation in base salaries and wages as the group implemented broad-based increases in May of 2022 to address the general wage inflation.

Postage and shipping increased 208% to $8.4 million from $2.7 million. And it is primarily attributable to the increased volumes associated with the banknote product line in addition, increases levied by carriers due to inflation and fuel charges. These costs have also increased as a result of higher trade with international parties, which require airfare, armored carriers and third-party processing fees.

Legal and professional fees increased 46% to $4 million from roughly $2.8 million and are primarily attributable to higher costs related to tax, audit and professional services, including search fees to recruit certain key roles.

The group’s implementation of Oracle NetSuite is on track for going live in the second quarter of 2023, and it accounted for nearly $0.5 million in cost. The group also incurred cost for the regulatory compliance program in EBC.

Bank charges – bank service charges increased 46% to $2.2 million from $1.5 million, primarily related to increases – increased volumes for payment activities. These charges are primarily offset by fees collected on payments, which are captured in revenue. The increase is lower than the relative increase in the group’s payment revenue as the group negotiated lower fees paid to counterparties to process certain wire payments that took effect on January 1, 2022.

Information Technology. That increased 34% to $2 million from $1.5 million, primarily reflecting non-capitalized computer equipment purchases for new staff and replacing older equipment, as well as variable costs associated with the increased payments volume as the group relies on third-party technology providers to deliver those products. The remainder of the increase is due to an increase in investment in cloud-based technologies such as new customer relations management software implemented in 2022 as well as cybersecurity.

Stock-based compensation increased 12% to $1.1 million, and it includes an expense recognized in relation to employee stock option plans, RSU and DSU awards. The group recorded expenses of $0.7 million related to RSU and DSU awards and nearly $0.5 million as the amount of stock options vested [ph] during the year in 2022. The RSUs and DSUs are both based on the fair market value of the group’s common stock and are subject to variable accounting tweak [ph]

Losses and shortages increased nearly 600% to $0.6 million from $0.1 million and it is primarily related to shipment losses, shipments lost in transit that the group self insures. In addition, the group did recognize a loss of about 50,000 as related to a Berkeley [ph] in one of its retail branches during the year.

Travel and entertainment expenses increased 153% to $0.5 million as conferences, trade shows, in-person business meetings continue a progressive recovery through the remainder and – through the remaining – and they remain below pandemic levels. A portion of the travel expenses related to the group having subdivided the cost of certain employee subsidize, the cost of certain employees to travel to work by car [ph] who prior to COVID-19 pandemic used public transit. The affected employees are primarily supporting the vault operations and cannot carry out their jobs functions from home. So the group discontinued this practice in May 2022.

The foreign exchange losses decreased by 57% to $0.3 million from $0.7 million and reflects the company’s progress in managing its foreign denominated balances between the time of recognition and settlement and incorporating such balances into its hedging program. Foreign exchange gains and losses associated with foreign currency inventory and unrealized gains and losses on foreign contracts are included in calculating commission revenue.

Other general and administrative expenses increases were mainly driven by increases in office supplies, licenses and fees, utilities and other related costs. This reflects a return to normal operating hours at most retail locations, the opening of new branches, higher inflation and expansion into new state jurisdictions.

The group recorded an income tax expense of $2.4 million in the year ended October 31, 2022, in comparison to nearly $1 million in the prior period. This is related to the increase in net income before tax. The statutory rate is 26%. However, the effective tax rate is 17.4%, which is primarily due to the application of previously unrecognized non-capital losses from prior years being applied to reduce taxable income in Canada for the year ended 31st of October 2022 to zero dollars.

In addition, the group recognized as Alan mentioned, a future income tax benefit related to unused non-capital losses from prior years that may be applied to taxable income generated in Canada in future periods. These non-capital loss balances will expire in the years ended 31st of October 2040 and ’41.

Now let’s review the balance sheet where there has been a significant increase, 33% and cash holdings to $88.5 million from $67 million last year, primarily due to an increase in banknote inventory to support the higher volumes required with the recovery in travel and also higher holding account balances.

There has also been an increase of $1.4 million in deferred tax assets due to a benefit being recorded in relation to historical operating losses incurred by Exchange Bank of Canada that’s now been recaptured. Given the unpredictable nature of demand and the significant increase in volumes, the group held higher inventory balances of certain currencies during the last quarter to mitigate the risk of running out.

We are also reviewing inventory at consignment clients related to demand and reducing levels on currencies that don’t meet turnover thresholds. Thus, we anticipate that our average inventory levels will decline, although there are susceptible to high peaks, especially at our trade and international banknotes continues to grow.

The remainder of the group’s working capital balances at year-end were in line with norms. There has been growth in holding account balances as a result of growth in business volumes, and those are offset by funds in bank accounts.

Other assets included $3.2 million in outstanding receivables related to the employee retention credit claim in 2021. Happy to say these funds have been received in December of 2022. The group has had a total available balance of unused lines of credit of close to $55 million at year-end.

Lastly, it’s worth noting that the group’s net equity position as at year-end was $69.3 million, an increase from the $58 million of the previous year. This exceeded the $66.3 million net equity position in January – 2020, the last reporting period before COVID. The group’s financial performance reflects a remarkable turnaround from the losses generated in the prior year.

I would like to conclude my discussion reiterating CXIs core values of customer first, integrity, passion, collaboration and innovation. And I personally believe that these values that our team lives and demonstrates daily out there in the branch network, kiosks and working from home, together with our strategy, we’ll create an even brighter future for the group and its stakeholders.

At this time, I would like to turn it over to Randolph Pinna, our CEO, to provide his perspective.

Randolph Pinna

Thank you. Thank you, Gerhard. Thank you, Alan, and thank you, everyone, for being on this call so early, especially those out West. We really appreciate your attention and involvement with CXI. Before I go into the details of our businesses, I actually want to take it up a level and talk about people and strategy.

To begin with, I’m very delighted and welcome Gerhard as our Group CFO. We’ve worked together already four months, and we feel like we’re best friends. It’s been a great relationship to begin with, and we look forward to a long future ahead.

I’m also very happy to see that Alan has dropped the interim role. He has completed his role being interim Group CFO, as well as at the bank. And we’re very proud to announce that Alan is our permanent bank CFO. He’s done a very good job, and we’re very happy with his work at the Exchange Bank of Canada.

So again, we have a very strong management team. There’s no more interim roles. We have a very strong Board of Directors. I’m very pleased with the team we have put together.

About the strategy of our group. This has really driven our company in the last few years because of the pandemic and the challenges it’s given us. Because of this strategy, which I’ll remind you, has four major pillars, which is our consumer, direct-to-consumer division, our Exchange Bank of Canada and its FX banking. It’s OPOP [ph] as we call it, one provider, one platform and our international expansion.

We do have the fifth pillar, which we’ve been investing heavily into, which is upgrading to Oracle’s NetSuite. We’re implementing a treasury management system called Kyriba. We’ve invested to increase and improve our cybersecurity because that is always a big threat, and we are continuing to invest last year as well as this year in further structural improvements to ensure the company can continue to grow safely and soundly for our investors.

The strategic plan, as analyzed actually made us reorganize the group structure. I’m very proud of the leaders of our company. Matt Schillo, as you probably know, has been our Chief Operating Officer since day one of the company, and he ran all of last year, the entire banknote business for the Consumer Division for Exchange Bank of Canada, as well as CXI’s core business of wholesale to banks. Matt Schillo is now the Managing Director to lead the entire unit of our Consumer Division.

Wade Bracy, who at the start of CXI was our CFO and migrated into being the Treasurer and has done many roles in the organization. Wade Bracy, led all of last year, the payments for both the bank and CXI. Wade has been promoted to be the Managing Director of the wholesale unit of CXI. That leads Exchange Bank of Canada.

James Devenish was hired 3 years ago with a goal to grow the bank, improve its sales culture and operations and now is leading – James Devenish is now leading the entire bank’s operations and sales teams. As well as this just as importantly is our second line, which involves compliance and risk. Dennis Winkel has successfully assumed the role of – he has been the Chief Risk Officer for the last 4 or so years. He’s also assumed the role of the Chief Privacy Officer. He’s also helping out with the compliance in the U.S. with some oversight to Catherine Shepardson, who’s been successfully leading the entire compliance team of the U.S. for the last 12 years.

So with the people and structure in place, a solid strategy and the systems to support it, our businesses are ready for a strong year ahead. We do have to invest in our year. So I’ll start with Exchange Bank of Canada.

First, as we’ve heard several times today, it’s profitable, consistently profitable, which is a huge win for everybody involved. This has been partly led because of the FBICS program of the Federal Reserve Bank. While it is based in New York in the last few months, we’ve actually have tested and are utilizing the Federal Reserve Bank’s Miami facility because that does improve shipments and reduce shipping costs. We’re very happy with that relationship.

The banknote business, as we’ve always known, is the largest part of Exchange Bank of Canada. It is growing on both sides, both domestically. We are entertaining additional financial institutions for our core foreign currency services, and we’re seeing strong demand for a second vendor to distribute U.S. dollars since the Canadian banking system has both Canadian dollar and U.S. dollar general ledgers, there is a need for U.S. dollar cash. And we will see the domestic business in Canada continuing to grow in banknotes.

Internationally, we’ve seen strong demand. We are continuing to expand, both in Europe as well as in South and Central America. You’ll see the company adding additional customers in Brazil, the Dominican Republic. Over in Europe, we’ve highlighted and started to look at customers in Eastern Europe, such as the country of Georgia. We are working on potentially having customers in Hungary and Poland and some other select countries. Each country does get a thorough review. It is approved first by the management team. And then the Board of Directors will have final approval of any new jurisdiction that we may consider to have customers in.

Now moving to the payment business. This is where we will continue to invest heavily into our expansion of our relationship banking in Canada. We have built a strong team both in Montreal as well as in Toronto, but we are investing with a minimum of six new sales people in Exchange Bank this fiscal year.

As you know, sales people can take up to a year to become profitable. That we have made this conscious decision to continue to invest both in systems and in people to ensure that we can continue a solid growth for our shareholders.

And moving into CXI. It too is led by banknotes. I’d like to start with the consumer division because the consumer division was a very strong contributor to revenues last year, and it is anticipated to contribute again this year.

The consumer division has three pieces to that. First, it’s the company-owned stores. As you know, we shed over a dozen stores during the pandemic, and we selectively added back a few new stores, some select maybe from another competitor that had exited the market.

Most recently, we have just opened in this fiscal year, we opened our newest location in New Jersey, near the Newark Airport, bringing our company-owned stores to 38 locations. We will be very careful as we continue to explore potential new stores as we look for high tourist areas, but also require a lower rent so that we can afford to be in business and offer a reasonable price.

Another area, which has seen a lot of growth and this is one of our big areas of expanding the consumer division is our agent relationships. As you now know, we have over 23 – acting 23 airport locations, including just most recently the JFK – GFK [ph] Terminal 8, so we’re now in Terminal 7, Terminal 3 and Terminal 8 at JFK, we’re at Newark Airport, Chicago, Charlotte, and a handful of other airports as well. Those airport relationships are managed by local operators, utilizing CXI’s platform, brand and oversight.

Additionally, we have agent locations like the Duty Free America and AAA. This national expansion of agent locations continues to be a successful way to grow the consumer division without the cost and risk associated to long-term leases and fixed rents.

Lastly, our online store is now licensed to be able to sell and has authority to sell to 38 states, representing over 70% of the U.S. market. This allows for people to order currency online and have it shipped to their home or office. This is another way to continue to expand. We’re very proud that Matt Schillo is leading this unit as the Managing Director and has full accountability of the profitability of each of those pieces of the consumer division. He has plans to continue to improve the marketing and expansion and reach of our direct-to-consumer offering in the United States.

Also on banknotes, just like Exchange Bank of Canada, we do have demand for select clients utilizing CXI’s facilities in Miami for international banknote services. We will see us continuing to expand in the Caribbean and select other jurisdictions as we did – deem safe.

So now moving over to the payments for CXI. We have our core service of banks. We call it OPOP, one provider, one platform, where we have integrated into core systems like Fiserv, both of the Jack Henry systems, and we are working on two other core banking software integrations.

Additionally, we have select integrations into proprietary networks of select financial institutions. This investment, which we will continue to do in this fiscal year into our IT, cybersecurity and integrations allows for our payment business to tap into existing flow of payments and switch the provider from a big major bank to a select organization like ourselves.

And lastly, I’m going to answer one of your questions, you guys ask it every time. I’m going to talk about M&A. We do not have a merger hot ready to talk to you. Although this group reorganizational structure allows each of the three managing directors to run their business, free giving me a little more time to work with owners to show those owners why it is beneficial for them to work and merge into the CXI Group, allowing those owners to continue to do what they do best, which is to grow their customer base, increase their revenues while benefiting from the strong back office and second line of defense that our company has in place with our people as well as our systems. We do have five active discussions going on. Again, nothing is hot enough to announce. However, we’re excited about the potential partners that may join the CXI Group.

So that concludes my update on the businesses and our group structure and the people. I open it up for questions. I apologize that we went a little long today, but we had a lot to talk about, and I welcome any questions you have. I also do want to remind you that our Annual Shareholder Meeting will be March 23rd in person – on March 23rd at the KPMG offices on Bay Street in Toronto. We will allow for digital attendance as well, but we hope to see you in person once again, like we used to do pre-pandemic.

So please respect the two question rule because we have limited time, and I would like to hear from as many potential – or shareholders or potential shareholders that have a question. So if you could open up the floor, Michelle, I look forward to answering their questions.

Question-and-Answer Session

Thank you, sir. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] Your first question will come from Robin Cornwell of Catalyst Research. Please go ahead.

Q – Robin Cornwell

Hi, good morning. And congratulations on a great year. I just have – my first question is two parts. It’s the global banknote trade. You last quarter indicated the – about a $2 million revenue in the quarter. Can you give us an idea what that would have been this last quarter?

Randolph Pinna

That’s a good question. I will see – on the finance, Alan, do you…

Alan Stratton

Yes, give me one second and I’ll address that for you.

Randolph Pinna

While he’s doing that, to save time. He’ll – he got – large got a bunch of notes here. So we’ll let him get into those. Go ahead…

Alan Stratton

So banknotes in the last quarter, if we just look at that quarter its been – you’re focusing on Exchange Bank consolidated, it’s about $16.4 million in that quarter, combining wholesale and retail. That’s the consolidated number.

Randolph Pinna

That’s at all bank notes…

Alan Stratton

All banknotes, yes.

Robin Cornwell

Yeah. Okay. And…

Randolph Pinna

We’ll see if we can find that number…

Robin Cornwell

Okay. Okay.

Randolph Pinna

Next question.

Robin Cornwell

And the – in that business, Randolph, I’m curious, is there a characteristic in that business that is there any seasonality? Is there any restriction on growth? I guess looking at the broad picture of that – that business because it looks like it’s very exciting to you?

Randolph Pinna

It is a very exciting business. The restrictions on growth are around our risk appetite. We are only working with countries and banks that are very well rated and have a lower risk rating. So higher – mid to higher risk rated countries. We are choosing at this time not to work with. The other restriction is capital. Some of the banks have a large volume that we do not have the asset size to participate in. So there is some restriction on some of the major large banks to compete with.

However, it is a big market, and we will continue to selectively expand that market. As far as seasonality, it does, as we’ve seen with CXI’s customers in the Caribbean, we’ve seen that the winter months, the Caribbean is busier when it’s hot down south and it’s less busy. So there is some seasonality to it. But for our group, because these jurisdictions may have a different seasonality than what we experienced in North America, it has been complementary. Did that answer your question? I don’t know…

Robin Cornwell

That’s great. That’s terrific. Thank you. And the second question really was an outlook for staffing. What do you see for 2023?

Randolph Pinna

Well, we don’t need another CFO. We have two now. And so you’ll see that the full payroll of ’23, I think that’s a very good question that will – I want to highlight to the shareholders that we did implement two raises in ’22, one unbudgeted unscheduled, but it was a defensive move that I required our company to do to ensure that our hard-working people and our busiest year ever were compensated fairly, and we didn’t lose too many. Luckily, we haven’t, touch wood.

And then at year-end, which is now taking the effect of this year, we did do another rate. It is just a reality that our North America, if not the whole world, is experiencing stagflation. And we must – we need to compete and keep our hard-working, talented staff, fairly paid.

As far as new hires, yes, we will be hiring mostly in the sales and technology area, both as I already called out, that James is going to be hiring a minimum of six. He’s looking for experienced FX bankers that are ready to work hard and join the FX team at Exchange Bank and Chris Johnson, who continues to lead the CX sales team is also looking to add select people. He’s identified an experienced partnership person that’s going to be joining us here shortly, as well as additional salespeople.

Paul Ohm, who’s running the IT department since the start of the organization is also selectively looking for experienced technology people to allow us to continue to do the integrations into the core systems or the proprietary networks that we’ve identified. So there will be continued investment.

Also, as you can imagine, with all this first-line growth, both Catherine and Farzana, who is our Chief Compliance Officer at Exchange Bank, are continuing to invest in to experienced people in the compliance and risk areas.

And so we will continue to see – the shareholders will continue to see that our company will continue to invest in systems and people to enable us to get to the next level, which we clearly have in mind ahead of us. Did that answer…

Robin Cornwell

That’s correct. Yes. Thank you very much. And that’s all for me. Thank you.

Randolph Pinna

Thank you, Robin.

Operator

Your next question comes from Jim Byrne of Acumen Capital. Please go ahead.

Jim Byrne

Yeah. Thanks, guys. Good morning. A couple of questions for me. I just wanted to maybe get a sense of almost on Q1 here for fiscal ’23. The travel chaos around Christmas and the headlines are obviously pretty negative. But looking at TSA [ph] numbers that helps – actually quite positive. Maybe just get an indication from what you guys saw so far in the first quarter and maybe relative to 2019 levels or even last year levels, what you saw so far?

Randolph Pinna

So Jim, we try not to give guidance. I can confirm living – I live between Toronto and Orlando, I think you know, living more in Orlando was a very busy Christmas season. And so that trend that we had last year has – has been there. But it is our slower time, if you know historically, is CXI’s seasonality, the first quarter is usually one of the slowest quarters. And so it – that has not escaped us that the fact that we are in our first quarter of our new fiscal year.

So I don’t know if that answered your question, but to be – you said 20 – how this year as a whole looking, we don’t know. Again, the war scares me personally, all this inflation and recession and all the mass layoffs we’re hearing in the news, do scare me. So we do have to take a realistic look at our year when we look ahead.

However, we have our strategic plan. We know the four areas of our focus, we’ll continue to execute on our strategic plan. I was happy to see that Delta and United both put out guidance for their shareholders to show they are expecting a record summer. The Disney Resorts are showing a high occupancy over the summer. So there are some indications that we could have a strong year, but we will stay focused on costs and growing revenues.

Jim Byrne

Okay. Thanks, Randolph. And then you mentioned, obviously, investing in the business and hiring a number of salespeople and senior people to keep this growth going. How do you feel like that might play out on the margin side and the expense side? Do you think we’ve obviously seen expenses climb here with increased revenue and the operating leverage come through to the bottom line.

I just want to maybe get an idea of not specifics, but are you still comfortable with the margins you’ve been generating here? Or do you think you need to make specific investments here to accommodate further growth?

Randolph Pinna

It’s the latter. I would see that we – in the short term, that you might see expenses growing faster than we would all want. However, we do see it as the time is now to make these investments, like we are converting our systems to NetSuite. We are implementing Kyriba.

So those are onetime costs that you saw last year, it was $0.5 million. You’ll probably see it another something like that this year to support the successful implementation of these core systems. We’re also investing into an automation system in our compliance around LCTR and CTR reporting and that stands for large cash transaction reporting. So we are doing some investments.

So in short term, you might see our efficiency ratio, margin slip a bit from where it was, but that’s – we anticipate just being short term. The sales teams are very focused to grow revenues. As James likes to say, revenue solves a lot of problems. And so we will continue to focus our top line as well.

However, as the CEO, it’s my responsibility to ensure that we have the safe and sound structure of the organization, which includes the systems and the people, both in the first line to get the sales and the second line to make sure they’re good sales that we can be proud of, we will continue to invest in that manner. So hopefully, that helps to answer your question, Jim.

Jim Byrne

Yes, that’s very helpful. Thanks, guys.

Randolph Pinna

Thank you.

Operator

[Operator Instructions] Your next question will come from Stephen Ranzini of University Bank. Please go ahead.

Stephen Ranzini

Fantastic job on the quarter and the year, and congratulations to the whole team. Randolph, I’m just curious, as we have discussed, there is a significant upside opportunity in the company if Exchange Bank of Canada can be authorized by its regulator to take deposits and then you would need lines of credit and you would be able to lower your overall cost of funds and generate net interest, more in net interest margin.

Have you given any more consideration to that? Do you think that’s a reasonable prospect for 2023? Where are you at in discussions with your regulators? Have you initiated that yet?

Randolph Pinna

No. We’ve discussed this at the board, Stephen. And well, it seems interesting, it’s a complete change of our bank structure, which was more a B2B bank. We are planning on updating our business plan selectively that might have us be consumer-facing. We have not done any of that work yet. We’ve done a lot of preliminary work, but it is not – I can confirm that there is no intent for Exchange Bank of Canada in the – you were talking about this year – at all this year or even the following year to become a deposit-taking institution. We are not interested in taking the deposits or lending that’s a business for our customers.

And so we are focused on improvements to Exchange Bank’s business plan to allow for further expansion in its core areas, but it’s not in deposit taking or in lending. But I appreciate the reminder. But at this time, the bank will stay focused as Canada’s foreign exchange bank, our specialty service of foreign exchange to banks and corporations across Canada.

Stephen Ranzini

Okay. Thank you. And then the follow-up on that is, would you potentially lose business if you did that against the – some of the larger banks that you do – do business with today?

Randolph Pinna

Yes. We’re not sure of the impact. I mean having a consumer division in CXI could be viewed as a competitor to some of our large national banks. Luckily, our clients since it’s specific for foreign currency services do not feel threatened by CXI, not to mention, we only have 38 branches, whereas one of our big top 10 U.S. banks have 1,000 branches. So we’re not a threat, whereas if we became a deposit-taking institution, they might be.

But again, this economically, we were not in that space. That’s a really change of our second line and oversight capital requirements. It’s a major change to our business. And at this stage, we are not interested in trying to become that type of financial institution. We’d like to be what we are Exchange Bank, a transactional bank money for money. And that’s our focus for the foreseeable in our current strategic plan.

Stephen Ranzini

Well, you’re certainly ultimately successful at that singular focus. So I just wanted to congratulate the team and good luck on another great year coming. Thank you.

Randolph Pinna

Thank you, Stephen. Appreciate your support.

Operator

We have a follow-up question from Jim Byrne at Acumen Capital. Please go ahead, sir.

Jim Byrne

Yeah, thanks. Just one quick follow-up. You mentioned the losses shortage is 620,000 for the year, obviously, up quite dramatically. I suspect largely due to volumes. But I mean, is there a rule of thumb here? Is that – have a typical level that you should expect to lose every year or get stolen, I guess, in some cases?

Randolph Pinna

Well, we – so no, that’s not a usual level. Unfortunately, I will not use names, but there was a well-known shipping company that had an issue. I’m told that they have cracked that. And so we would not see that high level of theft. We’ve also implemented armored car shipments in key markets like L.A., San Francisco and New York City, as well as South Florida. And that will reduce the amount of going in the self-insured overnight a manner in which we’ve shipped currencies.

So we do not – it’s a good point to bring up. We hope that, that’s where we can have an extra $0.5 million in this year that we did – we lost last year. But you will – it’s normal that some packages get lost or stolen or shredded. There’s all kinds of horror stories that you would be shocked to hear about, but there is losses and that is, of course, of our business, but it had always been running around maybe 100 grand. Now with volumes higher, yes, that could maybe get to 150 or 2, hopefully not more than that. But this last year was an unusual year with a band of fees. And – but we believe that’s under control now. And so we hope that we would not see that high level again this year.

Jim Byrne

Okay. That’s great. Thanks, Randolph.

Randolph Pinna

Thank you. Thank, Jim.1

Operator

We have a follow-up question from Stephen Ranzini at University Bank. Please go ahead, sir.

Stephen Ranzini

Yes, Randolph, the discussion just now about self-insurance you know, raises to me, business opportunity. Have you considered setting up a U.S. captive insurance company yet because that could be a very positive financial investment based on what you’re just talking about.

Randolph Pinna

We have not. Maybe we’ll have a call offline and we can discuss that further. But no, right now, we are looking at alternative insurance methods as opposed to us just self-insuring. But we – this is a focus of each of our managing directors to look at their operations and minimize the risk associated to them. I appreciate that suggestion.

Stephen Ranzini

Yes, I’ll be happy to talk to you about it offline. I think it’s potentially about a 40% return on investment, and it could really benefit you, especially if you’ve had a loss like that just recently.

Randolph Pinna

Yes, we’ll – happy to have a call with you any time.

Stephen Ranzini

Thank you.

Randolph Pinna

Michelle, any other questions before our time cuts us off.

Operator

There are no other questions at this time. Mr. Pinna. Please go ahead with any closing remarks.

Randolph Pinna

Thank you. Again, I’m sorry, we went the full hour, but it was a good conversation today. I appreciate it if something has come up, Gerhard and I will be going on the road a little bit to meet some of the shareholders in person because I’m a firm believer if people should hopefully be at the office more than not. And I would like to get back to meeting people, shaking hands and introducing Gerhard personally. I think a lot of you know, Alan, but Alan’s in Toronto every day. So you’re very welcome to stop by and say hello to him. I’m there next week as well. So I would be – I welcome any opportunity to discuss the business further for you. And I thank all of you for your support of CXI Group.

Gerhard Barnard

Thank you.

Alan Stratton

Thank you.

Randolph Pinna

Thank you. That’s it, Michelle.

Operator

Ladies and gentlemen, this does conclude the conference call for this morning. We would like to thank you all for your participation and ask that you kindly disconnect your lines.